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Exploring the Benefits and Risks of Credit Card Cash Advances

The advantages and potential drawbacks of using a cash advance. And an alternative option 👀

We don't wanna keep you waiting so we're just gonna jump straight to the alternative. If you’re in a bind right now, Cleo could spot you up to $250*. No credit checks. No interest. No stress.

What Is a Cash Advance on a Credit Card and How Does It Work?

A cash advance is essentially a short-term quick spot which is usually provided by your credit card issuer. It lets you withdraw cash up to a certain limit, either through an ATM or at a bank, using your credit card.

But before you start getting excited, it's not free money. Just saying.

Here's how it generally works:

Limits: The amount of cash you can withdraw is not necessarily the same as your credit limit for regular purchases. It's often lower and is known as your cash advance limit. It's probably not gonna let you withdraw $10,000 👀

Procedure: If your card issuer allows it, you can get a cash advance from an ATM, through a convenience check provided by your issuer, or by going to a bank branch.

Fees and interest: Cash advances usually come with a transaction fee, which is either a flat fee or a percentage of the cash advance, whichever is greater. And the interest rate for cash advances is typically higher than for regular purchases, and it begins accruing immediately – there's no grace period like there is with most credit card purchases.

Payment: When you repay your cash advance, any payment above the minimum required goes first to the balance with the highest interest rate, which could be your cash advance balance if its rate is higher than your purchase rate.

Check out What Is a Cash Advance on a Credit Card for a full run-down 💳

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Benefits of Cash Advances

Instant access to cash: A cash advance offers immediate access to cash, potentially a lifesaver in a sudden financial crunch. It's kinda like having a financial first aid kit.

No credit check: Unlike loans, cash advances don't tend to run a credit check. Which is good news for those with less-than-stellar credit scores who might struggle to get loans approved.

Straight forward process: The process of getting a cash advance is quite straightforward. You typically don't have to go through a lengthy application process. If your credit card has a PIN, you should be able to just use an ATM to get your cash advance. And if you don't have a PIN, you can go to a bank to get one.

And on the flip side…

Steep interest and fees: The main drawback of cash advances is the high interest rates and fees. They typically incur higher interest rates than regular credit card purchases, and interest starts building immediately. A cash advance often comes with a fee which is either a percentage of the advance or a flat rate, adding to the overall cost.

Impact on credit score: Although a cash advance from a credit card doesn't typically need a credit check, it could indirectly influence your score. Your credit utilization ratio (the percentage of available credit that is being used) can rise significantly with a cash advance, potentially impacting your credit score negatively 🙃

Potential debt cycle: Credit card advances should ideally be the final resort. If used constantly, you could find yourself in a cycle of debt. And we don't want that for you. If you begin to depend on cash advances for routine expenses, you might find yourself unable to pay the funds back on time.

How to Use a Cash Advance Wisely

If you're thinking of going down the cash advance route, you'll need to use them responsibly (sorry – hate to sound like your teacher).

A cash advance on a credit card should ideally be a last resort if you don't have any other options. Remember, they come with high fees and interest rates. This. Isn't. Free. Money.

As the interest starts building immediately, you should always try to pay the balance off as quickly as possible to minimize the amount of interest you'll owe. And only request as much as you absolutely need 👀

An Alternative to Credit Card Cash Advances 💡

If you're looking for an alternative, Cleo's completely different to a credit card cash advance.

She can spot you up to $250* to help you cover bills or unexpected expenses until payday. She won't hit you with huge APR rates, there's no credit checks, no fees, and no employment verification required.

Gig workers, we see you 👀

Build an Emergency Fund with Cleo's AI Powered Assistant

Having an emergency fund in place could prevent you from having to take out a cash advance when you're hit with bills you're struggling to pay.

So, how can you build it?

By budgeting. And luckily, we've got just the thing…

Meet Cleo's AI Powered Budgeting Assistant

With Cleo, you can:

💙 Get a personalized budget based on your actual spending
💙 Learn about your money by chatting with our AI Cleo
💙 See all your accounts in one place
💙 Stay on top of bills with our monthly bill tracker and payment reminder
💙Track your spending with breakdowns by category
💙 Avoid over drafting with low balance alerts

By providing a clear picture of your income, expenses, and financial goals, budgeting plays a vital role in helping you save money and achieving financial stability.

It doesn't matter how much you're able to save at first, just try to make some kind of contribution each month and slowly build it over time 💖

Enjoy this post? Give it a share or send it along to a friend. You never know, it could make a big difference.
Big love. Cleo

*Cleo Plus is our subscription service, which offers eligible users cashback on your money, information on your credit score, and access to cash advances ("Cash Advance"). Advance amounts will vary based on eligibility. To learn more about eligibility, repayment, and overall terms, please visit: meetcleo.com/terms.

Still have questions? Find answers below.
What is a Cash Advance on a Credit Card?
What are the Benefits and Drawbacks of a Cash Advance?
What is the Best Way to Use a Cash Advance Wisely?
Is there an Alternative to Credit Card Cash Advances?
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